Path-breaking Budget – Yet missed opportunity

The Finance Minister, Mr Arun Jaitley has presented a path-breaking, solid budget that has firmly set the direction for growth, social justice and job creation. He could have done more – particularly in delivery of education and healthcare, and empowering and involving local governments.

The most striking features of the budget are – the architecture of universal pension scheme, social security and personal insurance; boost to investment and economic growth; and substantial tax rationalization. Several social security schemes – accident insurance, pension plan, life insurance, senior citizens fund etc, if properly implemented, will provide much-needed social security to the unorganized sector and poor. This coupled with greater choice on EPF and ESI to the organized sector makes lives of the low income workers much better.

The overall goal of boosting investment has been accomplished by several significant measures. MUDRA bank for MSMES, comprehensive bankruptcy code, boost to infrastructure expenditure, creation of national infrastructure fund and tax-free infrastructure bonds, gold monetization scheme, focus on ease of doing business, and deepening bond market – all these will boost investment and infrastructure.

For the medium term, the FM attempted substantial rationalization of taxes. Phased reduction of corporate tax to 25%, removal of many exemptions, higher tax of 2% on super rich, abolition of wealth tax, firm commitment to launch GST from April 2016 and other tax proposals are long overdue and welcome.

Significant initiatives have been announced to curb black money and reduce corruption. The comprehensive new law on black money stashed away abroad will certainly act as a deterrent against flight of capital or undeclared foreign assets. Similarly strengthening the law against benami holdings and measures to promote non-cash transactions are in positive direction to curb domestic black money. Equally procurement law could curb corruption.

The FM has sensibly recalibrated FRBM targets, moving the fiscal deficit target of 3% to 2017-18 is a wise move that allows greater flexibility to raise borrowings for infrastructure investment. Similarly the move for direct transfer of subsidies to prevent leakages is in line with the policy in place.

Though the budget is impressive and path-breaking in many ways, there are serious omissions in it. By accepting the Finance Commission’s recommendations and increasing States’ share of central revenues from 32% to 42%, the government made a vital break through. But local governments are not yet treated as the third tier of federalism. The FM lost a great opportunity to transfer a significant share of states’ devolution directly to local governments, particularly for Swachh Bharat Mission and local service delivery. Ultimately citizen satisfaction is linked to participation, accountability and local delivery. There should have been a major attempt to link resources with service delivery and to fuse authority with accountability. Equally glaring is the failure to recognize the appalling outcomes of education and healthcare, leading to misery, perpetuation of poverty and lack of opportunity for the poor. Radical overhaul in both sectors incorporating choice, competition, public-private partnership, innovation, decentralization and accountability is warranted. This budget could have been a perfect 10 if these three challenges have been addressed.

India needs to move to outcomes and opportunity for the poor in place of allocations and short-term subsides. Let us hope the unfinished task will not be ignored for long.